Cryptocurrency Definitions: Fiat Currency

Fiat money is currency that a government has declared to be an official medium of payment recognized by law, but it is not backed by a physical commodity. The value of fiat money is derived from the relationship between supply and demand rather than the value of the material that the money is made of. Historically, most currencies were based on physical commodities such as gold or silver, but fiat money is based solely on the faith and credit of the economy.

Unlike fiat currency, cryptocurencies have no institutions printing additional funds. The only way to bring additional coins in circulation is through a complex process called mining. As a reward for bringing new coins in circulation, Bitcoin miners receive the privilege of being able to spend these coins first. Spent bitcoins are injected directly into Bitcoin’s growing economy once again. Spent fiat currency is kept out of the ecosystem until it is brought back to the bank, a process that can take anywhere from hours to years. Bitcoin’s economy is self-sustainable and open to anyone. This is the appeal of cryptocurrencies, and why there is so much excitement and hype behind them. It is a much superior currency system.

Cryptocurrencies are an incredible new and exciting frontier in the financial markets. To prepare yourself to capitalize on this exciting new opportunity, check out our Cryptocurrency Trading Chatroom.